A National Study of School Spending and House Prices

Abstract

We conduct the first national study of the causal impact of school spending and local taxes on housing prices by pairing variation induced by school finance reforms with 25 years of national data on housing prices. Our analysis speaks to two classic questions in economics: whether school spending matters and whether it is provided at efficient levels. The results indicate that households highly value school spending and, in particular, spending on the salaries of teachers and staff. Moreover, we find that salary spending is provided at inefficiently low levels throughout much of the United States, as increases in salary spending within a school district funded entirely by local taxes would generally raise house prices. Our analysis points to both the hiring of more teachers and increasing teacher pay as mechanisms for improving the efficiency of the provision of public schooling in the United States. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.